Describe the Various types / Classification of Policies.
Classification of Policies
A number of policies are used in an enterprise in order to attain the organizational objectives. Policies may be classified as follows:
(A) On the Basis of Source
According to their source, origin or emergence, policies may be of the following kinds:
1. Originated Policy
It is also known as formulated policy. It is a policy deliberately formulated by top management to guide decision-making at lower levels, board of directors, the chief executive, the executive committee of the board or heads of the major departments or divisions. Such policies are broad in scope and affect usually the whole organisation or its major segments. These policies are often written ones, typically in the form of a policy manual of the organisation and flow down.
2. Appealed Policy
It is a policy formulated on the appeal or request of subordinates for filling the gaps left by originated policies. In other words, when a subordinates refers an exceptional problem of recurring nature not covered by existing policies, to his superior and appeals for a policy decision. When the superior makes decision in such a case, it becomes a precedent (policy) for future action. Such policies may be formulated at any level and are in the nature of flowing upward policies.
3. Imposed Policy
It is a policy, which an organisation is compelled to adopt due to some outside forces, such as the government and its regulatory agencies, trade association, trade unions.
(B) On the Basis of Functions
Policies are needed in all areas of business of an enterprise. These may be classified on the basis of different managerial functions as follows:
1. Production Policy
Raw material, purchase policy, repairs and maintenance policy, technology adoption and development policy, quality control policy, inventory policy and research and development policy are some examples in the category. Indent for the purchase of raw materials should be made at least a week in advance is an example of Raw Materials Purchase Policy.
2. Human Resource Policy
Examples in this category are recruitment policy, training policy, employee career development policy, wages and salary policy, placement policy, promotion policy and transfer policy, employee participation policy. Any vacancy shall be filled first by promotion from within the organisation and then, if need be, from outside sources Is an example of Recruitment Policy.
3. Marketing Policy
Capital structure policy, packaging policy, distribution policy, advertising policy, customer service policy, credit policy, market research policy and important examples in this category. Customer's complaint must be responded within the next day is an example of Customer Service Policy.
4. Finance Policy
Capital structure policy, fixed capital policy, working capital policy, investment policy, research policy, divident policy are some examples in this category. Excess capital, if any should be invested for short term only, preferably in limited company shares registered in stock exchange is an example of Investment Policy.
5. Accounting Policy
Inventory valuation policy, depreciation policy, provisions policy (for bad debts etc) deferred revenue expenditure policy etc. are examples in this category. Deferred revenue expenditure (e.g., a huge amount spent on advertisment) should be spread over the years of its benefit generation and written off every year accordingly, is an example of Deferred Revenue Expenditure Policy.